India’s Hindustan Aeronautics Limited (HAL) has offered Tata’s TAL to jointly manufacture floor beams and other components for Sukhoi fighter aircraft.
This is the second time HAL and TAL are eyeing for a manufacturing arrangement. Though the companies had planned previously, it failed to work due to issues related to customs duty payable by TAL. TAL recently delivered 5000th beam for Boeing’s Dreamliner jets. Simultaneously, HAL brought proposal to revive the old deal.
HAL had placed similar order in 2014 but it failed to succeed because TAL has a unit in a SEZ, and the end product being supplied to HAL was in the domestic tariff area which attracted customs duty, Times of India reported last Thursday.
This is usual issue that units in a SEZ face as any supply from SEZ to a domestic unit is considered as an import to the buyer and custom duty is charged.
Even though TAL completed the initial order by bearing the duty cost, the deal was not taken further as it hit the margin. There was hardly any margin for TAL after paying the duty which was not passed on to HAL.
The issue was carried further to ministry of commerce that governs SEZs requesting that duty should be exempted as it was a project of national interest. The plea was turned down, an official said.
With fresh offer from HAL, the issue will again be taken to government. It will be carried to ministries of defence, commerce and finance.
Since the order is for fighter aircraft being used by the Indian Air Force (IAF), defense ministry will have to be involved. Even though SEZs fall under purview of ministry of commerce, the final decision on waiving customs duty rests with the ministry of finance.
If the work outsource is perimitted, HAL’s pressures will be eased and it may be able to make deliveries faster. TAL is looking to capitalize its expertise in using composite material. There are plans to jointly bid for more orders with Swiss component maker RUAG Aviation which is a Tier 1 supplier to Airbus. TAL is also banking on the advantage of low cost production it has in the country.